United States: Enforcement Considerations For The Health Care Industry In The Wake Of The WannaCry Ransomware Attack

On May 12, 2017, the WannaCry ransomware cryptoworm attacked
over 230,000 computers in over 150 countries, holding data on the
computers for ransom. WannaCry spread rapidly through networked
systems that had not been updated with Microsoft security patches.
The attack was particularly alarming because WannaCry victims
included a number of hospitals and health systems. The ransomware
affected the ability of many hospitals to access patient medical
records, billing records, and even data from certain medical
devices linked to the hospitals' systems, in some cases
interfering directly with hospitals' ability to provide patient
care.

In the wake of the WannaCry attack, many organizations have
asked themselves what steps they can take to guard against a future
attack—and what might happen if they fail to do so. In the
first part of this series,1 our colleagues addressed
what Boards of Directors and senior management should ask of their
companies information security and business teams in order to
assess how prepared a company is to respond to and recover from a
ransomware attack. In this second part of the series, we discuss
potential legal ramifications that may result if
organizations—especially those in the health care
sector—fail to prepare for a ransomware attack. Health care
companies face increasingly high expectations around data security
and, as the real-world effects of cyber-attacks continue to rise,
government authorities may very well take increasingly aggressive
steps to ensure companies are taking concerted action to keep
patient information safe.

HIPAA Compliance

In the U.S., health care providers such as hospitals (known as
"covered entities") must comply with the Health Insurance
Portability and Accountability Act of 1996, as amended by the
Health Information Technology for Economic and Clinical Health Act
and implementing regulations (collectively, "HIPAA").
HIPAA requires that covered entities and organizations that assist
covered entities with certain tasks involving the use or disclosure
of patient information (known as "business associates")
adopt administrative, physical and technological safeguards to
ensure the confidentiality, integrity and availability of patient
health information known as "protected health
information" or "PHI." Relevant to ransomware
attacks, mandatory safeguards include requirements to "allow
access [to PHI] only to those persons or software programs that
have been granted access rights,"2 to "protect
electronic protected health information from improper alteration or
destruction,"3 and to "guard against
unauthorized access to electronic protected health information that
is being transmitted over an electronic communications
network."4

Federal HIPAA Enforcement—Office for Civil Rights and
Department of Justice

Organizations that fail to implement these mandatory safeguards
in a satisfactory manner may face liability under HIPAA. The
Department of Health and Human Services ("HHS") Office
for Civil Rights ("OCR") is responsible for enforcing
HIPAA. Covered entities and business associates that experience a
"breach" of PHI (i.e., an event that compromises
the privacy or security of patient information) must affirmatively
report such breach to OCR and affected individuals. If there are
fewer than 500 individuals affected, OCR may choose to investigate
the breach; if there are more than 500 individuals affected, OCR
must investigate the breach. Such investigations frequently include
an examination of both the factors that may have caused the breach
and the covered entity or business associate's general HIPAA
compliance. OCR may review an organization's HIPAA compliance
for the past six years as part of its investigation. If a covered
entity or business associate is found to have violated HIPAA, OCR
may impose civil monetary penalties that range from $100 to $50,000
per violation (with an annual maximum fine per violation of $1.5
million), with aggregate penalties trending higher in recent
years.

For entities affected by WannaCry or other ransomware attacks,
OCR has issued sub-regulatory guidance5 that indicates a
ransomware attack is presumed to be a HIPAA breach unless the
organization can make a fact-specific determination that there is a
low probability the patient information was compromised by the
attack. As we have previously explained,6 in the eyes of
OCR, it may be difficult to conclude that a ransomware attack was
not a breach, particularly if there is a "high risk" that
the data's integrity was compromised.

In addition, the Department of Justice ("DOJ") has
authority to enforce criminal HIPAA provisions prohibiting knowing
disclosures of protected data. Over the last ten years, the DOJ has
shown increased willingness to pursue criminal penalties for HIPAA
violations.7 In 2015, for instance, four employees of
pharmaceutical company Warner Chilcott were convicted of criminal
HIPAA violations for reviewing patient records during visits to
physicians' offices. HIPAA's criminal provisions would be
directly applicable to ransomware attackers; however, enterprising
prosecutors could argue that egregious conduct on the part of
health care organizations–such as willful blindness to the
need for data security measures–amounts to a
"knowing" disclosure of patient information and warrants
enforcement action. While prosecutors would face an uphill battle
charging a ransomware victim with "knowing" complicity in
an attack, a breach resulting in significant patient harm may
trigger a correspondingly aggressive response from
enforcers.8

State Attorneys General

State Attorneys General also have authority under federal and
often state law to seek damages on behalf of state residents in the
event of a health care-related data breach. The HITECH Act of 2009
gave State Attorneys General the power to seek injunction or
damages in any instance in which he or she has "reason to
believe that an interest of one or more of the residents of that
State has been or is threatened or adversely affected by"
exposure of PHI in violation of HIPAA.9

In addition to HIPAA, State Attorneys General often have a
variety of state law remedies at their disposal to seek redress for
patients harmed by a data breach at a hospital or other healthcare
provider. Consumer protection statutes, for instance, may provide a
cause of action where a data breach was occasioned by an unfair or
deceptive act by the healthcare provider,10 and State
Attorneys General may contend that failure to implement appropriate
safeguards or a violation of existing policies intended to protect
patient information constitutes an unfair or deceptive act. These
consumer protection statutes can greatly increase a healthcare
company's exposure in the event of a data breach.11
Many states also have their own data security12 or
health records laws13 that may provide additional
sources of enforcement authority.

The Massachusetts Attorney General's office has been
particularly aggressive in exercising its HIPAA authority and
pursuing state remedies when patient data is disclosed. Since 2012,
Massachusetts has secured settlements in five suits resulting from
data breaches at hospitals and other healthcare providers. For
example, the Massachusetts Attorney General reached a $750,000
settlement with a community hospital for alleged failure to
appropriately protect patient information when backup tapes
containing names, Social Security numbers, and medical diagnoses
for over 800,000 patients were lost during shipment to an offsite
vendor. Later, medical billing company Goldthwait Associates and
four pathology groups that used its services paid a total of
$140,000 in settlements to the Massachusetts Attorney General when
Goldthwait allegedly disposed of patient medical records in a
public dump. Even though the pathology groups that contracted with
Goldthwait had no active involvement in the allegedly improper
disposal of patient information, they were accused of failing to
appropriately vet Goldthwait as a service provider.14
Finally, the Massachusetts Attorney General settled three separate
suits against Massachusetts hospitals allegedly arising out of
thefts of unencrypted laptops and backup tapes containing patient
information. These cases underscore the importance ensuring
appropriate protection for patient information—both from
inadvertent disclosure and intentional attacks—even after it
leaves the healthcare provider's control or premises.

Other State Attorneys General, including those in New York and
New Jersey, have shown a willingness to pursue actions under HIPAA.
In 2015, New York's Attorney General sought penalties against
the University of Rochester Medical Center ("URMC") under
HIPAA where a nurse accessed URMC patient records and provided a
list of patient names and addresses to a future
employer.15 In addition, the New Jersey Attorney General
recently reached a $1.1 million settlement agreement with Blue
Cross/Blue Shield after the theft of unencrypted laptops
compromised data from nearly 690,000 customers.16 The
complaint alleged broad scale failure to implement appropriate
technological controls to protect PHI and PI and failure to train
and supervise employees with access to HIPAA-protected information.
As data breaches become more common, health care companies should
expect more State Attorneys General to embrace the HIPAA
enforcement authority granted by the HITECH Act to pursue remedies
where state residents are impacted.

Federal Trade Commission

The Federal Trade Commission ("FTC") has authority to
bring enforcement actions against certain parties engaged in unfair
or deceptive trade practices under Section 5 of the FTC
Act.17 The agency has taken the position that data
security failures can constitute unfair or deceptive practices
under the statute, and has taken numerous enforcement actions based
on that position.18 Recently, the FTC has increasingly
focused these actions against healthcare companies, despite the
fact that their data security practices are already regulated by
OCR and State Attorneys General.19 The FTC has also
focused on ransomware in the past year, providing a workshop series
as well as advice to consumers and businesses on how to avoid and
respond to ransomware.20 The increasing scope of the
FTC's enforcement activities, as well as its recent focus on
ransomware, should emphasize to healthcare organizations that
enforcement in the wake of a ransomware incident may come from a
number of regulatory agencies, including the FTC.

The WannaCry attack should be a wake-up call to health care
organizations. This month, HHS's Health Care Industry
Cybersecurity Task Force categorized health care cybersecurity as
"in critical condition" and warned that the industry that
health care companies must take "immediate and
aggressive" action to secure IT networks and valuable patient
data.21 Increased enforcement activity, high penalties
for noncompliance, increasingly sophisticated hacking and
ransomware attacks and warnings from Federal agencies have created
a perfect enforcement storm for unprepared organizations in the
health care industry.

On July 25, the U.S. Department of Health and Human Services' Office for Civil Rights (OCR) announced that it has implemented several changes to its web-based breach-reporting portal (commonly referred to as the "Wall of Shame"), which lists healthcare data breaches of 500 or more patient records dating back to 2009.

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